Saturday, February 14, 2009

Stock Market -- Position Overview

Our recent newsletter, dated January 21st, stated that the US stock market remained within an oversold condition, and is continuing within its period of consolidation before resuming the decline in the long-term bear market. We projected a DOW trading range for the month between 7,900 and 9,600. The actual result saw the DOW continue to consolidate, but in a slightly narrower trading range than anticipated, between 7,909 and 9,088 -- a fairly accurate forecast.

We stated that developing economies have allowed themselves to become dangerously export-dependent, while tying their currencies to the US dollar and building mountains of excess savings. We further stated that this type of growth model is crumbling fast as global demand is plummeting. We anticipated that these issues, along with others, could support the US dollar, at least for the near-term, and we projected a euro fx equivalent trading range for the month between $1.25 and $1.37. The actual result did see the US dollar supported, during the course of the month, with a euro fx equivalent trading range between $1.2780 and $1.3707 -- a very accurate forecast.

We stated that the world does not lack capital, which is simply sitting on the sidelines, including $6 trillion in global money-market funds. Some of these funds are invested in US treasuries and have price-supported them recently, but that could change, as funds are reallocated to different investment vehicles. We projected that this could cause the US 10-year Note to have a base-yield for the month of 2.58%, since as US treasury prices decline, yields inversely rise. The actual result did see the US treasuries decline in price and yields inversely rise, producing a US 10-year Note yield range for the month between 2.58% and 3.28% -- a very accurate forecast.